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"Do you think SARS will agree with the way I’ve been declaring my trading income?"

I’m a commodities spread trader and would like your opinion on how to declare my income to SARS. The trading is done electronically from home mainly on the Chicago commodities market (CBOT), but the trades are channeled through my UK account.

Since I started trading I’ve used the principle that all the funds I transferred back into SA (drawings out of my account) are taxable. I’ve declared it as such in my tax return. I’ve also claimed expenses incurred in the production of my income. On my tax return I net the income and expenses off and show the net figure under “foreign income”.

The only drawback is, of course, that I need to remember that the original capital I transferred out of SA (to fund the account), will not be taxable when I bring it back into SA.

I’m not sure whether SARS will like the way I declare income; I’m worried the Commissioner may see it as delaying or postponing my tax, in the case my account grows more than the money I draw out of it. Also, I’m not sure if the value of open contracts accrues to me and whether I’m entitled to it or not. And because of this, I decided to only show the cash I draw out of my account.

An alternative treatment (if open contract value does accrue) would probably be to calculate income as follows: The account balance at the end of February in the current year ,
LESS the account balance at the end of February of the previous year,
LESS funds transferred into that account during the year ,
PLUS drawings out of that account during the year.

However the drawback to this is that it would be impossible to calculate provisional tax accurately, since sometimes enormous losses are suffered (or profits made) unexpectedly. The only practical way seems to be the “cash” basis.

Unfortunately I don’t know what other traders do. Some are very secretive about all this – others leave it to their tax consultants so they don’t actually know how everything’s calculated and declared. What’s more, before I started trading, I informally asked two different consultants – but neither could explain the tax treatment to me, except to tell me that trading income would be taxable (not CGT).

Can you give me advice on the principle I’ve been using, only declaring my drawings as income? Also, do you think I’ve reflected this correctly on my tax return?

Added to
  • Tax returns
  • Sars
  • Tax return
  • Foreign income
  • Tax legislation
  • Gross income
  • Independent contractors
  • Taxable income
  • Provisional tax

Meisie
 User  Meisie asked on 12 Feb. 2013

 

1 answer

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Andre van Staden
 Expert Andre van Staden answered question on 19 Feb. 2013
In terms of present tax legislation, as a resident of this country, you’re obliged to render a return for all of your worldwide income, which is called gross income. In simple terms, gross income means all of the income which you’ve worked for and to which you’re unconditionally entitled, in your own name and for your benefit.

From the facts which you’ve set out, it appears that you’re self employed. For the purposes of income tax, you’re regarded as an independent contractor. Consequently, you’re entitled to claim all of the qualifying expenses which you’ve incurred in conducting your trading activities, as allowable deductions in the calculation of your taxable income.

In other words, these expenses may be deducted from the sum of your gross income, to determine your taxable income.

You’re obliged to state sum of your gross income, as well as the sum of your expenses on your return. You may not net these amounts off against each other, and return only the net amount.

The question of whether or not you’re unconditionally entitled to any amount, in terms of an open contract, will depend on the terms of the contract. When these terms have been established, it would also be easier to deal with the question of the calculation of provisional tax.

I suggest that you seek professional advice on the calculation of your tax liabilities, since this is a complex scenario.



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